This research evaluates how changing from cost-based Medicaid reimbursement to prospective case-mix adjusted payment per diem affects nursing home patients' health and well-being. Specifically, research will evaluate the prospective cse-mix payment system that was implemented by New York State in 1986. The research will employ unique and high quality data collected in conjunction with this payment system. The specific aims are: (1) To determine the overall effect of prospective payment on patient health and well being by: (a) assessing its effects on the mix and level of services nursing homes provide patients (b) assessing the effects on the nursing home services on patient health and well being (2) To assess the effects of other important variables on the services provided patients and consequently on patients' health status. These variables include patient characteristics (e.g., age, sex, payor status, and type health problem),facility characteristics (e.g., proprietary versus not-for-profit home ownership and size) and system characteristics (e.g., nature of competition, and urban versus rural). The results are also expected to demonstrate how quality is affected by ownership and market competition, and how quality varies with patient characteristics. The results should have important implications for the design of Medicaid and Medicare nursing home payment policies. The importance of the proposed research is related to the central role of nursing home care in the lifestyle maintenance and provision of health care to chronically and severely ill populations.